COP26: ADB, Philippines, Indonesia launch partnership for energy transition mechanism

The Asian Development Bank (ADB) and the governments of the Philippines and Indonesia on Wednesday launched a new partnership to establish an Energy Transition Mechanism (ETM) in a bid to retire coal-fired power plants in the two Southeast Asian countries.

The partnership was announced by ADB president Masatsugu Asakawa, Indonesian Finance Minister Sri Mulyani Indrawati, and Philippine Finance Secretary Carlos Dominguez III at the 26th United Nations Climate Change Conference of the Parties (COP26).

Dominguez, who is chairman-designate of the Climate Change Commission (CCC), heads the Philippine delegation to the COP26.

In a statement, the ADB said the ETM Southeast Asia Partnership is the first of its kind in Asia and the Pacific and aims to help accelerate Southeast Asia’s clean energy transition.

The multilateral lender said the partnership was endorsed by senior cabinet-level officials from Denmark, the United Kingdom, and the United States, as well as leading global financial institutions and philanthropies.

The ADB said Vice-Minister for International Affairs at the Ministry of Finance of Japan Masato Kanda delivered a video message at the launch, in which he announced Japan’s Ministry of Finance was committing a grant of $25 million to the ETM, the first seed financing for the mechanism.

“ETM can usher in a transformation in the battle against climate change in Asia and the Pacific,” said Asakawa.

“Indonesia and the Philippines have the potential to be pioneers in the process of removing coal from our region’s energy mix, making a substantial contribution to the reduction of global greenhouse gas emissions, and shifting their economies to a low-carbon growth path,” Asakawa added.

For his part, Indrawati said the ETM is an ambitious plan that will upgrade Indonesia’s energy infrastructure and accelerate the clean energy transition toward net-zero emissions in a just and affordable manner.

Likewise, Dominguez said, “A clean energy transition in the Philippines will create jobs, promote national growth, and lower global emissions.”

“ETM has the potential to accelerate the retirement of coal plants by at least 10 to 15 years on average,” the Philippine Finance chief said.

Under the partnership with Indonesia and the Philippines, the ADB said it will work with government stakeholders to pilot ETM by jointly conducting a thorough feasibility study focusing on the optimal business model for each pilot country; bringing together concessional resources from donor governments and philanthropies, in close coordination with global climate change-focused funds; and leveraging large amounts of commercial capital to trigger a decisive shift toward decarbonization.

The lender said energy demand in Asia is set to double by 2030, and Southeast Asia is one of the regions continuing to build new coal-fired capacity.

Some 67% of Indonesia's electricity and 57% of the Philippines' power generation comes from coal, it said.

Indonesia has committed to reducing emissions by 29% by 2030 and achieving net-zero emissions by 2060.

The government of the Philippines, meanwhile, announced plans to place a moratorium on new coal-fired power plants.

The ADB said ETM is a transformative, blended-finance approach that seeks to retire existing coal-fired power plants on an accelerated schedule and replace them with clean power capacity.

It said that the mechanism will comprise two multibillion-dollar funds: one devoted to early retirement or repurposing of coal-fired power plants on an accelerated timeline, and the other focused on new clean energy investments in generation, storage, and grid upgrades.

It is envisioned that multilateral banks, private institutional investors, philanthropic contributions, and long-term investors will provide capital for ETM, according to the ADB.

During the two- to three-year pilot phase, the lender said the ETM will raise the financial resources required to accelerate the retirement of five to seven coal plants in Indonesia and the Philippines, while facilitating investment in alternative clean energy options within these countries.

The lender said a full scale-up of ETM in Indonesia, the Philippines, and possibly Vietnam—aiming to retire 50% of the coal fleet, which is approximately 30 gigawatts, over the next 10 to 15 years—could cut 200 million tons of carbon dioxide emissions per year, the equivalent of taking 61 million cars off the road.

As it grows, ETM has the potential to become the largest carbon reduction program in the world, the ADB said.

A pre-feasibility study has been completed and a full feasibility study is underway to finalize the financial structure of ETM, identify candidate coal plants for inclusion in the pilot program, and design just transition activities, it said. — LA, GMA News